Fitch Hints at Possible Credit Outlook Upgrade for South Africa with Debt Stabilisation Plan

Fitch Ratings has indicated that South Africa’s credit outlook could see a positive adjustment if the government adheres to its outlined three-year debt stabilisation plan. In a statement released on 4 November, Fitch noted that meeting the targets in the recently announced budget could positively impact the country’s credit rating, while also expressing caution around the ambitious projections.

Government’s Debt Forecast vs. Fitch’s Projections

The National Treasury recently projected that South Africa’s state debt would peak at 75.5% of gross domestic product (GDP) in the fiscal year ending in March 2026, an increase from February’s projection. In contrast, Fitch projects a slightly higher debt-to-GDP ratio, expecting it to reach 76.9% by March 2027. This difference is partly due to Fitch factoring in possible financial transfers to Transnet, the struggling state-owned logistics company.

Fitch’s concerns are also tied to South Africa’s broader economic and fiscal challenges, including potential delays in debt reduction due to these state-owned enterprises and the burden of fiscal consolidation efforts.

The Path to Economic Stability

Fitch noted that if South Africa’s economic outlook improves beyond current projections, making fiscal consolidation more attainable, this could strengthen the government’s capacity to rein in debt. The National Treasury has raised its average growth forecast to 1.8% over the next three years, up from 1.6% forecasted in February. This revision is driven by a stabilising energy supply and anticipated growth in infrastructure investment. However, South Africa’s GDP growth has averaged less than 1% over the past decade, underscoring the scale of this ambition.

The rating agency affirmed South Africa’s credit rating at three levels below investment grade with a stable outlook in September, citing high public debt levels and limited fiscal space.

Potential for a Credit Outlook Upgrade

While Fitch’s current projections are more conservative than those of the government, an improvement in South Africa’s medium-term growth outlook and progress in debt stabilisation could lead to a credit outlook upgrade. For South Africa, this signals the importance of implementing reforms to bolster growth, stabilise energy supply, and manage debt efficiently—factors critical to the country’s fiscal health and economic stability.